Builders, Promoters, Developers or any such persons constructing a Residential Complex shall be liable to pay Service Tax: CESTAT [Read Order]

The Bangalore bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that builders, promoters, developers, or any such persons constructing a residential complex shall be liable to pay service tax.

The appellant Pramod & Others  filed a refund claim for Rs. 30,578/- based on the Board Circular No. 96/2007- ST dated 23.08.2007, wherein it is clarified that no service tax is payable by builders or developers and is only applicable for the contractors, who build for the builders or developers. The appellant in the appeal contended that; appellant had an ambiguity as to the applicability of service tax on the construction industry in view of conflicting clarifications, hence they have registered under the category of ‘Construction of Residential Complex Services’ and paid the appropriate service tax; they realized that the activity undertaken by them is not a taxable service hence the amount paid should be treated as deposit and should be refunded to them; the transaction between them and the purchaser of the flat is that of selling and buying of immovable property and they have not undertaken any construction activity for or on behalf of the purchaser.

Mr. M.A. Jitendra, representing the respondent submitted that this is a case for refund of service tax paid by the appellant on ‘Construction of Residential Complexes Service’. The refund claim was filed by the appellant on the grounds that they only buy and sell the property and they are not in the construction business, hence clarification vide Board Circular No. 96/2007-ST dated 23.08.2007 is applicable to only developers and builders and since they are only in buying and selling of property, their activity does not attract service tax under the category of ‘Construction of Residential Complexes Service’

 The bench found that the where the builder, promoter, developer, or any such person constructs a residential complex with more than 12 residential units by engaging a contractor, the contractor, in his capacity as a taxable service provider, shall be liable to pay service tax on the gross amount charged for the construction services under the 'construction of complex' service.

Further found in this case the appellant contends that they are not in the activity of ‘Construction of Residential Complexes’ to attract levy of service tax. They have contended that they are purchasing land, building flats and selling them to the customers. They are in the business of buying and selling of flats and hence they are not liable for service tax. Nonetheless they have registered and paid service tax, realizing that they ought not to have paid service tax they have filed a refund claim for the service tax paid.

 However, since the required documents as proof of payment of service tax as well as non-collection of same from the buyers was not produced by way of documents, their refund claim was rejected by the original authority as well as by the first appellate authority. The single member bench of the tribunal comprising Pullela Nageswara Rao (Technical member) concluded that the required documents are not brought on record even in the appeal before this Tribunal and the appellant has not appeared for hearing on the last three occasions. Accordingly, the appeal filed by the appellant was dismissed.

To Read the full text of the Order CLICK HERE

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